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Poking More Holes in the First Sale Doctrine

The parade of cases undermining the first sale exception of copyright law continued this week with an unfortunate ruling from the Second Circuit.

The “first sale” principle is what allows the purchaser of a copy of a book or CD or other copyrighted work to later resell that copy to someone else without infringing the copyright owner’s distribution right. It’s an important free-market limitation on copyright owners’ rights that most of us take for granted. In the recent Second Circuit case, Wiley v. Kirtsaeng, a graduate student lawfully acquired foreign editions of textbooks abroad and then resold them in the United States. The student was subsequently sued by the U.S. textbook owner for copyright infringement. Looking at the statutory language of the first sale provision together with another provision of the Copyright Act concerning importation of copyrighted works, the court concluded that the first sale doctrine applies only to copies that are manufactured domestically, and not to copies manufactured abroad.

The ruling has potentially far-reaching implications. In theory, it could give copyright owners full control to regulate or even prohibit resale of their works so long as the copies of those works are manufactured abroad. Imagine if Apple tried to argue that you couldn’t resell your iPhone that was manufactured in China, or if Toyota tried to argue that you couldn’t resell your Prius that was manufactured in Japan. If a product incorporates some copyrightable componentlikely true for most electronics and many new cars, which include copyrightable software or firmware, though even a copyrighted logo will suffice (more on that below)you might only be able to resell it, if at all, on the copyright owner’s terms.

The ruling also creates a perverse incentive for U.S. businesses to move their manufacturing operations abroad. Surprisingly, the court concedes this point in its opinion but declines to be persuaded by it. It is difficult for us to imagine this is the outcome Congress intended.

Separately, it’s hard to reconcile an outcome in which U.S. copyright law is alternately available (to the copyright owner seeking to enforce U.S. copyright rights) and not available (to the consumer seeking U.S. copyright law’s resale protections). The court even notes that while the books at issue were published abroad, they nevertheless all bore American copyright notices and in some instances invoked provisions of the Copyright Act. That the copyright owner should be permitted to avail itself of the U.S. copyright scheme while the consumer of the copy is barred from doing so seems inconsistent at best.

In a factually similar case from 2008, the Ninth Circuit found that the mere presence of a copyrighted logo enabled a manufacturer to invoke the first sale doctrine to block the unauthorized sale of imported goods. But the court created a limitation on that principle: If the initial sale had occurred with the copyright owner’s authority, then the first sale doctrine would apply. The Wiley court established no such limitation. Under its holding, even a sale authorized by the copyright owner would not trigger first sale provisions. The breadth of the rule is striking.

EFF and others had asked the Supreme Court to review the Ninth Circuit’s earlier decision. The Court agreed; however, the justices were evenly divided on both sides of the issue (Justice Kagan recused herself), so the matter remains unresolved. Given the discrepancy in these circuit holdings and the Supreme Court’s earlier expression of interest, we think it’s likely the Court will pick up the issue again. Hopefully its analysis will support, rather than undermine, time-honored first sale protections.